Soaring energy prices: Bernhard Dahmen comments on the effects on EU feed and protein markets

Rising energy costs, logistic challenges and supply chain disruptions are dramatically shaping the EU feed industry.

In our interview with Bernhard Dahmen, we explore how producers adapt to the challenges and how the EU government is responding to provide guidance and solutions for more sustainable local production efforts.

What are the immediate effects of rising energy prices on the European feed sector?

The immediate effects [caused by the war in Ukraine] materialized as people reacted to the news and were concerned about price increases. Questions and insecurities around supply chain management arose.

And now the effects are to be felt on logistics because while we’re undertaking huge efforts to support the movement of commodities coming out of Ukraine, unfortunately, the quantity of trains and trucks available in Europe is not sufficient to satisfy all needs.

Moving on to the high energy crisis that the war has brought upon us, this is now having a stark impact on processing plants, which are struggling with such high energy costs. Processes such as drying for feed are no longer viable.

Drying requires electricity and has become too expensive and, as is the case for many products, market prices don’t provide much of a profit.

Therefore many producers in any type of industrial production of agricultural commodities are switching from dried to liquid products.

This switch from dried to liquid is changing the global market.

How are geopolitical decisions affecting energy supply and, consequently, agricultural products?

All geopolitical decisions that have been taken since the war started in Ukraine have affected Europe tremendously. Because, as I said earlier in the panel discussion [at the Global Grain event], we’re now looking at a second crop coming to Europe.

As Ukraine has not been able to export much of its products via vessel, great quantities are being delivered into the heartland of the EU. A lot of these products would normally go to different destinations. We’re getting a second corn crop. A second wheat crop is going to Italy, Romania, Hungary, Germany and Poland. Part of the imports will stay in these countries, and the other part is intended for other destinations.

Which agricultural commodities are most affected by the energy crisis and why? 

All agricultural commodities processed in industrial plants that need a lot of drying are affected.

Due to high energy costs drying becomes less and less economical, and so, as I said before, the industry is still uncertain about this kind of processing. Energy costs are so high, in fact, that a lot of industries are considering processing their products through biomethanation as an alternative. This could reduce some of the types of products available in Europe, for example, gluten.

Wheat gluten is one of the commodities most affected because it requires a lot of energy in order to dry.

Of course, it will continue to be produced to some extent, despite the high energy costs, but it will have a lower value for producers. And here’s where we’ll see an immediate change. Producers will have to vet whether it is more viable to process through biomethanation and save on energy supply or whether to dry products and sell them as a dried co-product or animal feed.

What regulatory steps is the EU undertaking in response to sustainability issues in protein markets? 

The EU has outlined a protein plan to incentivize the growth of protein feed within the EU, for instance, soybeans. Soybean yields are being encouraged in every region.

In addition, there’s a push to have more plants per acreage and to diversify. For instance, our group, Südzucker Group, has now taken on board the planting of fava beans. These are a strong protein source and have a very important function as meat replacers.

These changes are ongoing as the EU is trying to incentivize farmers to plant more and diversify.

So, I would say there’s a lot of effort in planning for sustainability by the EU. Whether or not this will be successful is difficult to say because, in the case of proteins, for instance, much will depend on global prices. But we’re expecting more plans to be outlined by the EU.

How will intensification programs affect crops in the 2022-23 season?  

It’ll be difficult to intensify planting for the 2022-23 season. It is something that moves slowly, I think.

What will bring the biggest impact to European markets in the 2022-23 season is that wasteland can now be used to grow grain. So that means more acreage for people to plant wheat, corn, etc. That may help to have a bigger supply of grains.

When it comes to protein plants, there’s a longer-term plan. Farmers are incentivized to grow new plants or other varieties to make up for our deficiencies in the EU.

If you’d like to find out more about animal feed and protein market trends, join our upcoming Global Grain and Animal feed event in Singapore. Click here for more details.